The following problem is based on concepts of Chapter $13($mostly$)$

The stock of Birdy Corp., a socially responsible and tax$-$exempt company, has an expected return on

equity of $14\%$ according to the CAPM. Birdy finances its assets with debt and equity in the same

proportion each. The debt of Birdy is risk free. If the market risk premium is $6\%$ and the T$-$bill rate is $2\%,$

calculate:

a$)$ Equity beta $({}_E).[2$ points$]$

b$)$ Beta of Birdy assets unlevered. $[2$ points$]$

$[$Note: with no taxes the assets beta is the same for the levered and unlevered firm$]$

c$)$ Cost of capital of the unlevered firm. $[2$ points$]$

d$)$ Cost of the levered equity. $[2$ points$]$

e$)$ Weighted average cost of capital. $[2$ points$]$

f$)$ Birdy is considering investing in a one$-$year project with an initial investment of $$400$ million and

an expected cash flow of $$440$ million only. If the financing structure of the project is the same as

the firm as whole $($i$.$e$.,$ financing with the same debt to equity ratio$),$ determine:

f$1)$ The Net present value of the project. $[2$ points$]$

f$2)$ The internal rate of return of the project. $[2$ points$]$

f$3)$ Should the project be accepted? Justify your answer. $[2$ points$]$The stock of Birdy Corp., a socially responsible and tax$-$exempt company, has an expected return on

equity of $14\%$ according to the CAPM. Birdy finances its assets with debt and equity in the same

proportion each. The debt of Birdy is risk free. If the market risk premium is $6\%$ and the T$-$bill rate is $2\%,$

calculate:

a$)$ Equity beta $({}_E).[2$ points$]$

b$)$ Beta of Birdy assets unlevered. $[2$ points$]$

$[$Note: with no taxes the assets beta is the same for the levered and unlevered firm$]$

c$)$ Cost of capital of the unlevered firm. $[2$ points$]$

d$)$ Cost of the levered equity. $[2$ points$]$

e$)$ Weighted average cost of capital. $[2$ points$]$

f$)$ Birdy is considering investing in a one$-$year project with an initial investment of $$400$ million and

an expected cash flow of $$440$ million only. If the financing structure of the project is the same as

the firm as whole $($i$.$e$.,$ financing with the same debt to equity ratio$),$ determine:

f$1)$ The Net present value of the project. $[2$ points$]$

f$2)$ The internal rate of return of the project. $[2$ points$]$

f$3)$ Should the project be accepted? Justify your answer. $[2$ points$]$